By Scott DiSavino
March 4 (Reuters) - One of the best ways to boost power grid reliability ahead of extreme weather events like the Texas freeze is a capacity market that pays generators to keep plants available, executives at two grid operators and an energy company said Thursday.
Speaking at CERAWeek by IHS Markit, Chief Executive Gordon Van Welie of New England's power grid operator ISO New England said "It really comes down to how much insurance you want to buy."
"We had the big wake up call back in January 2004 where (like Texas) we had about a third of our (natural gas) fleet not able to get enough fuel," Van Welie said, noting now "We have capacity markets ... with incentives and penalties if plants don't perform."
Capacity markets pay generators to keep plants available whether they produce energy or not.
Texas, meanwhile, has an energy-only market with a high $9,000 per megawatt hour price cap that pays generators for power they produce. Prices hit that price cap during the February freeze at the same time millions of customers had no power. However, during normal consumption, prices should be lower without the premium charged in capacity market.
"Modern society has zero tolerance for any material disruption in electricity supply," said Manu Asthana, CEO of the U.S. Mid Atlantic and Midwest power grid operator PJM Interconnection.
"We've had capacity markets for 15 years and they have been really successful and helped deliver over $20 billion in investments," Asthana said.
As the power industry transitions to cleaner forms of energy like wind and solar, Thad Hill, CEO of U.S. power generator Calpine Corp, said capacity payments will become even more important for gas-fired plants.
In an energy market, wind and solar generators usually offer power at little or no cost, which increases the amount of generation available but reduces what others in the market receive. All plants receive the same amount as the least expensive unit taken to run by the grid operator.
(Reporting by Scott DiSavino Editing by Marguerita Choy)